How To Read A Credit Report

When you look to buy a new car, you’ll have to learn a new skill: learning how to read a credit report.  You’ll want to pay as close attention to your car credit report as your favorite blog or novel, because what you’re reading is just as interesting---and far more important.

A credit report is a listing of your credit activity and history.  When you give the dealer your social security number, you are giving him permission to ‘run your credit’.  No credit report, no car.

Before applying for a car loan, either at your bank or at a car dealer, it’s a good idea to take a look at your credit report.  The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.

A credit report includes information on where you live, how you pay your bills, and whether you’ve been sued or arrested, or have filed for bankruptcy.  The big credit reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use the report to evaluate your applications for credit, insurance, employment, or renting a home.

According to the Federal Trade Commission, only one website, annualcreditreport.com, is the official site to help consumers get their free credit report (or all three, from each of the agencies).   The reports are not standard and often don’t have the exact same information on them, so you may want to order all three at the same time. To order your report(s), visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form (available at http://www.ftc.gov/bcp/edu/resources/forms/requestformfinal.pdf) and mail it to: Annual Credit Report Request Service, P.O. Box 105281,Atlanta,GA30348-5281.

A credit report can at first seem a daunting document.  But legislators have been pushing the industry for years to make the reports more understandable by the average consumer, and with a little effort, you’ll be able to quickly master the format. 

A credit report is divided into a handful of sections: identifying (or personal) information, credit history including potentially negative items), public records and requests for your credit history, also known as inquiries.

You may want to start at the beginning, with your personal identifying information.  Check to make sure its accurate.  For example, there might be several spellings of your number or even more than one Social Security number.  This section may also have information that includes your current and previous addresses, date of birth, phone numbers, driver license numbers, your employer and your spouse's name.  If there are errors, particularly anything that might smell of identity theft, contact the credit reporting agency to clear them up.

Another key section is your credit history, which could also be called credit items.  Each entry will include the name of the creditor and the account number, which may not be printed in full for security purposes.  A typical entry might be Bank X, with its address and account number. Somewhere in the entry it would say what type of credit the account was, whether it was installment credit, such as a car loan or mortgage, or revolving, like a credit card.  Each item would also list when it was opened, how long the account has been reported, the Credit, high balance, and recent payment.  It would also state whether responsibility for the account would be individual or joint. 

A key line would be ‘status’ listing the status of the account whether it was paid on time, never late, or past due by the number of days.  Comments like “charged off” or “default” are particular red flags to potential lenders; it means the creditor has made an effort to collect a debt and given up.

Another ‘bad news’ section would be Public Records.  This area lists things like civil claims, bankruptcies, unpaid judgments and tax liens, any of which can significantly tarnish your credit.  If there are errors or omissions here, (like, for example, an outstanding judgment that has actually been paid off) you should take immediate action to contact the credit reporting company and update your credit report.

Finally, you’ll see the ‘inquiries’ section, which are requests for your credit history.   In other words, when a potential lender, employer or other organization gets into your report, an inquiry will be entered.

Using what the credit reporting agencies call a ‘complex mathematical model’, the information in your credit report is turned into a number, called a credit score. Depending on the agency and score, the numbers typically range from the 300s to the 900s.  Generally, the higher the score, the less risk the person represents.

Most people score in the 500s, 600s or 700s.  Scores in the 700s or above are generally considered ‘good credit.’ 

However, your score can be (and usually is) different with each of the big three credit reporting company. 

After you’ve requested your free credit report from annualcreditreport.com, the website says you’ll be given an opportunity to purchase your credit score from the reporting agencies. Another option is the MYFICO.com website, which can also give you access to your credit (often called FICO) scores.

While you go to AnnualCreditReport.com to get your car credit reports from the big three reporting agencies, you must dispute errors and other issues with them directly.  To contact Equifax, Experian, or TransUnion directly, go to their websites:www.equifax.com, www.experian.com, www.transunion.com

And take heart.  Interpreting your score and your car credit report—and deciding whether to give you credit---is up to your dealer, not the reporting agency.